Thursday, August 16, 2007

A Time To Look For Bargains

Just as I predicted, U.S. stock prices have been extremely volatile and erratic although generally volatile downwards. From Monday to Wednesday they simply declined in line with my trend estimate. They then continued to decline during most of today's (Thursday) session, only to suddenly during just a few minutes of trade erase the losses of the day in line with my volatility prediction.

Today featured unequivocally bearish economic news with rising jobless claims, falling housing starts and a stagnant Philly Fed which is what together with increasing general anxiety is what triggered the decline that lasted through most of today's session. Then for no real reason the losses were suddenly erased at a record time. Again, this sort of extreme erratic volatility up and down is what one could expect in a bear market so bad that people actually consider the utterly useless U.S. government bonds to be a safe haven!

Expect more of that irrationality and erratic volatility in the near future. However, since the fundamentals support the bearish case, the trend will continue to point downwards for U.S. stocks.

Interestingly enough, many European markets have actually declined even more than U.S. stock markets in a bear market triggered by problems specific to the U.S. economy. To be sure, globalization has decreased the link between local economies and local stock markets, which is why some extent of global correlation between stock markets is actually justified. But it is certainly not justified for European stock markets to fall more than U.S. stock markets who still after all remain a lot more exposed to the U.S. economy.

This means that the indiscriminate declines in almost all stock markets have created bargains for investors. They probably exist on all stock markets -including the American ones- but they likely exist particularly on European stock markets where many stocks with limited exposure to America have taken a heavy beating from America-specific problems.


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